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Cropp: Higher Milk Output is Keeping Prices Lower
Wisconsin Ag Connection - 04/24/2012

Last week's announcement by the USDA that milk production was up in the 23 major dairy states in March means prices will probably not be rising anytime soon. Dr. Bob Cropp, professor emeritus with the University of Wisconsin Cooperative Extension, stated in his monthly Dairy Situation and Outlook report that a boost in the number of cows being milked, along with above-normal increases in milk per-cow are to blame for this strong increase in milk production.

"Milk production is exceptionally high in all western states," Cropp pointed out, while adding that only Pennsylvania had lower production in the eastern region. "In the Upper Midwest, Wisconsin had 3,000 more cows and a 4.2-percent increase in milk production. This strong increase in milk production is straining the capacity of manufacturing plants in the West and Upper Midwest. As a result, some dairy cooperatives in the West have asked their producers to reduce milk production, and are paying a substantially lower price for a portion of the milk of those producers who don't."

Simply put, Cropp says more milk means an increase in dairy product production and the building of dairy stocks. He adds that sluggish fluid milk sales means more of the milk production needs to be used for manufactured dairy products.

Meanwhile, Cropp says dairy exports continue to be an important part in moving increased dairy product production overseas.

"Dairy exports were a record last year accounting for 13.3-percent of U.S. milk production on a total milk solids basis and added real strength to dairy product prices," he says. "USDA forecasts exports to be lower this year, with exports on a milk-fat basis down 11.6-percent due mainly to less butter exports, and down just 3.8-percent on a skim-solids basis due to continued favorable nonfat dry milk/skim milk powder exports."

Compared to last year, exports for the first two months showed nonfat dry milk/skim milk powder up five-percent, cheese up three-percent, and lactose up two-percent.

With more milk, more dairy product production and more stocks, dairy product prices have been depressed, he said. CME butter during April ranged from $1.425-$1.455/lb. and currently is at $1.4125/lb. CME 40-pound cheddar blocks ranged from $1.4875-$1.51/lb., and currently is at $1.51/lb.. Dry whey, which was near 70¢/lb. in the last quarter of 2011 is now in the range of 48¢-55.25/lb. And nonfat dry milk, which was above $1.60/lb. last summer is now in the $1.17-$1.30/lb. range.

"Lower dairy product prices results in lower milk prices. The March Class III price was $15.72/cwt., compared to $19.40/cwt. a year ago. The Class III price for April will also be near $15.70/cwt. The March Class IV price was $15.35/cwt. compared to $19.41/cwt. a year ago. The Class IV price for April will be lower, near $14.85/cwt."

Cropp says high feed costs and favorable cow slaughter prices could eventually result in a slow down in production; but that remains to be seen.

Current dairy futures show a very modest price recovery. Class III futures fall to a low of $14.75/cwt. for June, don't reach $16/cwt. until September, and remain in the low $16's for the remainder of the year.


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